BP plc (ADR) (BP): The Company’s Recent Sale Shows Little Confidence in Renewable Energy

It wasn’t that long ago that BP plc (ADR) (NYSE:BP) was said to be ushering in a new kind of energy company. It was creating a diversified giant focused on both fossil fuels and renewables. Fast forward a couple years and now BP plc (ADR) (NYSE:BP) is completely exiting the renewable energy sector.

BP To Pay Massive Fine, More To Come

In a continuation of its recent asset sales, BP plc (ADR) (NYSE:BP) announced that it is putting its wind business on the auction block. The sale includes 16 operating wind farms with total capacity of about 2,600 megawatts. The company hopes the sale will generate $3.1 billion which it can use to reinvest in high-margin oil and gas projects. This sale comes on the heels of exiting its solar business in December 2011 and reverses what had been a creative plan to build a diversified energy company.

The shale oil boom in the U.S. along with a worldwide reduction in renewable subsidies has really clouded that industry’s future. Given limited visibility for wind beyond 2014, when current U.S. tax credits expire, it makes sense for the company to exit the business ahead of that time.

Despite those headwinds, the wind business had been growing briskly — last year, BP plc (ADR) (NYSE:BP)’s capacity grew 50%. The company feels that it is simply prudent to unlock the value of its wind assets now given that it could never build enough scale to really move the needle.

For the right owner, wind assets represent a solid path to investor returns. NextEra Energy, Inc. (NYSE:NEE), for example, just installed its 10,000th megawatt of wind-generating capacity. Its wind business has really been a driving force in propelling its shares higher in recent years.

That’s why it wouldn’t surprise me if NextEra Energy, Inc. (NYSE:NEE) or even Exelon Corporation (NYSE:EXC) emerge as the winning bidder for BP plc (ADR) (NYSE:BP)’s wind assets. Exelon Corporation (NYSE:EXC) is very reliant on nuclear power and recently cut its dividend because the company is not generating a high enough return to support it. The other factor behind the cut is that the company wanted to maintain its investment-grade credit rating so that it could participate in attractive opportunities. The BP assets certainly represent a compelling opportunity given size of the generating portfolio.

That being said, BP plc (ADR) (NYSE:BP)’s proposed sale of its wind assets shows that it has little confidence in renewable energy. The company can generate much higher returns from fossil fuels and it needs all the returns it can muster after forking over billions of dollars to pay for the Gulf of Mexico disaster. Given the company’s strategy to generate 50% more annual cash flow by 2014, it make sense to part with an asset that no longer had the potential to develop into a core business for the company.

The article BP’s Recent Sale Shows Little Confidence in Renewable Energy originally appeared on Fool.com.

Fool contributor Matt DiLallo is short Apr 2013 $35 puts on Exelon. The Motley Fool recommends Exelon.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Top Reasons For Getting Fired

The 3 Best States to Start an LLC

10 Jobs That Allow You to Travel

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!